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FINALIZING THE SALE – POLLUTION ISSUES IN A PURCHASE & SALE AGREEMENT

April 4, 2014

In the last twelve months, we have seen a drastic increase in the number of sales and acquisitions taking place in the oil patch. For many operators in the industry, the buying and selling of existing production and/or leases seems to be a revolving door. Unfortunately, many of these deals stall when it comes to negotiating the responsibility for pre-existing pollution conditions within the agreement. Most often the seller does not want to retain any of the liability and the buyer certainly does not want to inherit any unknown pollution conditions that may have previously developed. Typically, this potential for liability leads to significant funds set aside in escrow to cover a potential event.

To help expedite an amicable purchase and sale agreement, and avoid setting aside a lump sum in escrow or personal guarantee, we recommend our clients put a transferable, gradual pollution policy in place. These policies are relatively inexpensive and provide coverage for unknown pre-existing pollution conditions. These policies are not subject to the sudden and accidental reporting requirements of most General Liability policies and can be transferable upon sale. Transferable, gradual pollution policies can also be purchased for a multi-year policy period.

Having an insurance broker entrenched in your industry will not only help with smooth transactions, but can also ensure you have the insurance coverage you need to best protect your company and assets. For more information, please feel free to contact me directly.